Hi guys, I am back from my little vacation! How are you? I hope you managed to make some money last week.
As I said just before I left bulls were supposed to push indexes higher this past week to prevent the daily DMI going red again and that's exactly what it did happen. As you noticed from the daily chart, DMI gave a warning to the bears (1), then the actual "buy" signal came (2) and finally the DMI was tested (3). Now DMI is positive but it looks like it doesn't want to make a decisive move into the green zone suggesting that bulls are not that confident at this point. Still the ball is in their court especially since the market managed to climb above SMA200 as well, a level very well watched even by people who don't trust technical analysis. I mentioned a few times that I rely mostly on EMAs since EMAs put more weight on the recent data but I am trying to keep you alert when SPX crosses either SMA50 or SMA200 two levels many people and many computer are programed to take action as soon as they are crossed, therefore very important resistance/support areas. Both SMA50 and EMA50 are rising, while SMA100, EMA100 and SMA200 are barely pointing up. Another bullish sign is that SPX managed to stay above the uptrend line.
Bulls should be aware that the last two earning seasons started in their favor just to see bears taking control at the end. It doesn't mean is going to happen again but they should keep their guard up and prepare to take action if the momentum turns in bears favor. The best clue, again, is going to come from daily DMI. Talking about DMI, long term players should keep an eye on DMI on weekly charts that is still negative but is getting more and more bullish. MACD on weekly charts is about to give a "buy" signal if market is going to go up this week.
Looking at hourly charts it's easy to notice the resistance level around 1130. This is not an important level in my opinion since it was only an intra-day value that was touched on the day SPX moved strongly up in the morning just to finish in red by the end of the day. This reversal day set the tone for a huge plunge from 1130 to 1020. More important are the closing values and SPX is just a little bit above the high seen on June 21st, around 1119.
Since we are here on the subject, you probably noticed that I do have set my chart style to "line" (or "close") instead of "candlesticks" like the majority of the people. The reason I am doing this is for simplicity, the chart looks least "busy" plus I can easily draw my uptrend or downtrend lines. Candlesticks have the advantage of showing the intra-day data, plus there are some nice patterns you should be aware of. The most useful pattern in my opinion is the "engulfing candle". It can be either bullish or bearish. A bullish engulfing candle appears when a red (down day) candle is followed by a big green candle whose "body" is going both bellow and above (it engulfs) the body of the previous day candle. Look at a bearish engulfing candle on SPX and two bullish engulfing lines on X.
P.S. Thank you very much to all of you who clicked on the ads displayed on this page. Please continue to click to keep me motivated to continue these free analysis on daily basis (clicking 3-5 ads every couple of weeks should be enough if everybody does it)